Question
Frocks and Gowns, Inc., has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $820,000 and produces (and
Frocks and Gowns, Inc., has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $820,000 and produces (and sells) 113,000 units of Collars at a market price of $12.90 per unit. Variable costs total $7.30 per unit, and fixed charges are $3.20 per unit (based on a capacity of 133,000 units). The Night Wear Division wants to purchase 28,000 units of Collars from The Day Wear Division. However, the Night Wear Division is only willing to pay $9.00 per unit. What is the contribution margin for the Day Wear Division if it transfers 28,000 units to the Night Wear Division at $9.00 per unit?
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